Project Bank Accounts under scrutiny

On 4 August 2026 the Technology and Construction Court handed their decision on E & TL Jones (Civils) Ltd v Vale of Glamorgan Council [2026] EWHC 2054 (TCC) which considered whether a subcontractor could rely on the Contracts (Rights of Third Parties) Act 1999 to recover unpaid sums where a Project Bank Account (PBA) had never been established, despite the provisions of the agreed contract. The decision provides a timely reminder that PBA provisions only can protect the benefitting party only once the PBA has been established, and when the benefitting party has been admitted into it. 

Background

The dispute arose from a school extension project in Penarth. E & TL Jones, a groundworks subcontractor employed by ISG Construction Ltd before its entry into administration, was left unpaid in relation to an application worth more than £480,000 and sought to recover its losses directly from the Council, relying on the Contracts (Rights of Third Parties) Act 1999. The reason for this being that ISG, who were obliged to open the PBA, were paid directly by the Council, due to ISG’s omission. Subsequently, before E & TL Jones being paid, ISG fell into insolvency.

The agreed project contract (NEC4) between the Council and ISG required the establishment of a PBA, a payment mechanism intended to protect the supply chain by ringfencing project funds which are to be paid directly to subcontractors. In this case, the contract provided for eligible subcontractors to be admitted to the PBA as “Named Suppliers” through a formal joining process. Once added, those suppliers would receive payments through this protected account rather than directly from the Contractor, or Council. Although the trust deed governing the PBA was executed, the account itself was never opened. 

Due to the PBA never being opened, the Council had made numerous certified payments directly to ISG under the main contract, four of which included sums relating to E & TL Jones. ISG paid the subcontractor’s earlier applications however failed to pay application number 4 worth over £480,000 after entering insolvency, with no PBA ever being opened. 

E & TL Jones sought damages from the Council arguing that it was entitled to enforce the PBA provisions under the Contracts (Rights of Third Parties) Act 1999 as it accepted (and the judgment recorded) the sub-contractor no realistic prospect of recovery from ISG following its entry into administration.

Decision

The Court dismissed the claim. As the account had not been established and the contractual process for admitting suppliers had not been completed, the Court found that the subcontractor had not acquired the contractual status necessary to enforce the PBA provisions.

Although the contract envisaged a PBA and clearly intended to benefit participating subcontractors, E & TL Jones had never been formally admitted as a Named Supplier and the PBA had never become operational. The Court also distinguished between obligations owed by the Council as employer, and those owed by ISG as the main contractor, finding no liability on the part of the Council. 

An argument advanced by E & TL Jones that the Council was benefitting from its own breach of contract also failed. E & TL Jones argued that by making payments to ISG, the Council breached the main contract with ISG, and was therefore benefitting from its own breach of contract. The Judge held that the argument was premised on E & TL Jones being able to enforce that main contract, which it was not able to do, because it was not a Named Supplier.

Comment 

This decision serves as a reminder that PBAs are only as effective as their implementation. Whilst PBAs may provide a safeguard against insolvency, this judgment demonstrates that the protection is contingent on the PBA being established; until then, the benefit of the PBA remains theoretical.

It will now be a question on how subcontractors will react to this decision, possibly becoming more reluctant to commence works until a PBA, which is a contractual obligation of the contract, has been established. On projects where the value of a PBA is only realised once a supplier has been formally admitted, some subcontractors may consider seeking confirmation that the account is operational before mobilising on site, particularly on projects involving large payment applications or where concerns exist regarding contractor financial stability.

The judgment also illustrates the limits of the Contracts (Rights of Third Parties) Act 1999 in a construction context. The fact that a contractual mechanism is intended to benefit subcontractors does not necessarily mean those subcontractors will acquire enforceable rights where all contractual conditions have not been satisfied.

The judgment also comes at a time when the industry is considering alternatives to cash retentions. PBAs are often cited as part of the solution. Following the collapse of several high-profile indebted construction companies, including Carillion, Interserve and ISG, there has been a renewed focus on PBAs and how to reduce the impact of a main contractor's insolvency on the supply chain.

With the Government continuing to examine alternatives to traditional retention arrangements, PBAs are likely to remain an attractive option for employers and contractors. However, this case demonstrates that they are not a complete solution to insolvency risk and careful attention must be paid to implementation and administration of the PBA throughout the life of the project. 

Ultimately, PBAs are not without significant practical difficulties and there is no panacea in the event of contractor insolvency. 

Sasha Pirbhai and William O’Brien are Partners and Deniz Agirbas and William Collins are Trainee Solicitors at Devonshires.